The GBP/USD bounced back modestly on Wednesday morning session as the dollar index eased back a little, ahead of the release of some important US data in the afternoon. The US dollar has had a positive last few days, which has added a bit of pressure on the GBP/USD and other major pairs. As well as mixed US data, the dollar recovery has also coincided with the rebound in oil prices, owing to the situation in Iran and other geopolitical risk factors concerning Venezuela and Greenland. Though CPI was a touch weaker, this didn’t have any major influence on the US dollar yesterday. Neither did news that the Department of Justice had launched a probe into Jerome Powell. But the pushback from several Republican lawmakers have eased concerns about risks to the independence of the Federal Reserve. All eyes will now turn to the PPI and retail sales data, due shortly, which could further influence the GBP/USD forecast.
US PPI and Jobless Claims up next
Following news of a slightly weaker US core CPI print, there will be more inflation data to come today with the release of PPI. Both headline and core PPI are expected to print +0.2% month-over-month. Meanwhile, retail sales are also landing later on today, followed by jobless claims on Thursday along with several Fed speakers. Between September to November, retail sales grew only 0.2%, underscoring recent concerns about consumption. But shopping for Christmas may have given sales a boost in December, although it remains to be seen whether this will be enough to lift concerns about a struggling US consumer. Retail sales for December are expected to print +0.5% on the headline front and +0.4% on the core front.
One other potentially market moving event that investors will need to be watching is the Supreme Court ruling on Trump’s tariffs. A potentially unfavourable ruling could emerge at some point this week and that may lend further support to the dollar.
GBP/USD forecast also weighed down by BoE rate cut expectations
Looking at the pound side of things for the GBP/USD pair, the focus remains firmly on the Bank of England and interest rate cuts. Recent UK data suggests a cooling economy and easing inflationary pressures, keeping the door open to further rate cuts. While February still looks a step too far, the balance of evidence suggests March is increasingly plausible, potentially followed by another move in early summer.
The labour market remains a key concern for the more cautious members of the MPC. Vacancies have fallen sharply and now sit below pre-pandemic levels, while redundancies appear to be picking up. Wage growth has slowed noticeably, with private sector pay increases dropping from around 6% earlier last year to just under 4% by the autumn. If this trend continues, services inflation should ease further as food prices, rents and energy costs all cool. Base effects from last year’s tax changes are also likely to push headline inflation lower from April onwards, potentially keeping CPI close to 2% for much of the year.
We will have some UK data to look forward to on Thursday. UK monthly GDP estimate will be released alongside several other domestic data, including construction output and industrial production.
GBP/USD technical analysis
The GBP/USD forecast has started look a bit shaky in recent days, though it has managed to hold for the time being above the key 1.3400 handle. The prior bullish momentum has clearly faded following the rejection from the 1.35 area, which coincides with a broader long-term resistance zone. The lack of upside follow-through suggests bullish conviction is waning. If we now see rates hold below the 1.34 handle, where the 200-day moving average comes into play, then this would shift the balance towards a deeper corrective phase with the location of the next support not very obvious. The 1.3220 level could be where dip-buyers might step in next. On the topside, initial resistance is seen around 1.3460 area now, with stronger resistance being that 1.3500 level.
Overall, the GBP/USD forecast looks increasingly tilted to the downside, barring a major downside surprise in upcoming US data. Near-term direction will hinge on today’s US PPI and jobless claims data and any legal developments in Washington, while the medium-term outlook remains closely tied to the Bank of England’s next move.
